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FCC Spectrum Auction: Big Spending, Small Change
- Week of 10/12/2006
Last month after six weeks and 161 rounds of bidding, the Federal Communications Commission (FCC) wrapped up its 66th wireless spectrum auction. The auction, which FCC Chairman Kevin Martin called the, “the biggest, most successful wireless auction in the Commission's history,” sold 1,087 radio spectrum licenses to 104 bidders; it also netted the U.S. Treasury just under $14 billion. Though dominated by large players, it has been noted that the real change in the near future will not be large and it may be the small players which introduce it. “These new airwaves will do little to change the competitive landscape among the largest wireless operators during the next several years.”
Big spenders in the auction were T-Mobile, Verizon Wireless, and a Sprint/MSO consortium made up of Cox Communications, Time Warner Cable, and Bright House Networks. The Sprint/MSO consortium spent $2.4 billion for 137 licenses and it is largely expected that these will be held onto for future use or as a hedge, the same is being said for the Verizon acquisitions. Verizon spent $2.8 billion for 13 licenses; a relatively small number, but as Light Reading notes, “several of the ‘regional economic area’ licenses cover large swaths of the nation, including the Northeast, Southeast, Great Lakes, and Mississippi Valley areas, as well as Honolulu.”
T-Mobile, perhaps because of its position as the number four wireless provider, behind Cingular Wireless, Sprint Nextel, and Verizon Wireless, or perhaps because of how much it spent, almost twice the second highest sender, is receiving much of the post-auction press. T-Mobile spent $4.2 billion for120 licenses, licenses primarily in major metro markets such as New York City, Los Angeles, Chicago, Miami, and San Francisco. Some analysts expected T-Mobile to spend even more, an expectation based on the fact that the company needs to make some strong moves to keep up with its rivals. According to Forrester Research, “T-Mobile, the smallest of the four national providers, is currently the most spectrum-constrained wireless provider with an average of 25 MHz in most markets versus an average of 40 to 60 MHz held by Cingular, Sprint, and Verizon Wireless.” T-Mobile might also be getting the spotlight because it is the only one of the top spenders expected to act immediately on its acquisitions; in fact work has already begun. In New York City half the upgrading has already been done and most of the national work is expected to be complete by the end of 2008. At a rare meeting with journalists in New York the company said some customers will be offered new services as early as mid 2007. Though specifics were not given as to which areas the rollout would begin in, the Associated Press suggests that, “New York obviously seemed a good bet.”
T-Mobile appears confident in its plan, confident enough to back it up with more spending and strong growth projections. In addition to the $4.2 billion it spent to buy spectrum, T-Mobile will spend an additional $2.7 billion to upgrade equipment needed to deliver multimedia services and look for a spot in the top three. The company also expects to increase its subscriber base from 23.3 million to between 35 million and 40 million; this is above previous projections which capped growth at 30 million customers.
Fourteen billion dollars is a lot of money, and the majority of it came from major players, but this combination is not necessarily ringing in immediate changes on a large scale. With the exception of T-Mobile, the auction’s big winners are expected to sit on their licenses for future projects, which puts change a ways off. In addition, parts of the spectrum that were sold are still in use and need to be cleared prior to the new owners taking control, in some cases this is years away. Furthermore, even with the mover, T-Mobile, spectrum acquisitions are allowing it to catch up, rather than introduce new products. As Forrester Research points out, “Current T-Mobile customers holding out hope for improved service quality will be disappointed for the next several years.”
Some have made light of the fact that Martin mentioned the role of the smaller companies that took place in the auction; the percentage of the billions that they put out was minimal. However, it is from these companies, Leap Wireless and Metro PCS in particular, that some of the larger changes will come. Both Leap Wireless and Metro PCS sell cellular services as a replacement for fixed-line services and collectively have less than 4 million subscribers; the purchases could increase the footprint of both these companies to well over 100 million. Their total purchases in the auction added up to just 18 percent of the total, however, the purchases were for spectrum bands in areas that until now were devoid of wireless services. Change may come not in the type of services offered, but in the reach of basic services to all. Now according to Forrester Research, “Significant commitments by Leap Wireless and Metro PCS will bring flat-rate wireless plans to a majority of U.S. consumers.”
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